RUSTOMJEES OZONE CO OP HOUSING SOCIETY LTD,MUMBAI vs. ITO WARD 41(4)(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”(SMC) MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)

ITA No. 1381/MUM/2026 Assessment Year: 2022-23

Rustomjees Ozone Co-Op Income-Tax Officer, Ward Housing Society Ltd. 41(4)(3), Kautilya Bhawan, Vs. Goregaon Mulund Link Road, Bandra Kurla Complex, Mumbai 400062 Mumbai. PAN NO. AABAR0644K Appellant Respondent

: Shri. Kishor Rajeshirke Assessee by Revenue by : Shri. Pravin Salunkhe, Sr.Dr.

Date of Hearing : 08/04/2026 : 20/04/2026 Date of pronouncement

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 11.12.2025 passed by the Ld. Commissioner of Income-tax (Appeals) Act - National Faceless Appeal Centre (NFAC), Delhi [Ld. CIT(A)] for A.Y. 2020-23, raising following grounds:

“1. On the facts, in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals), National faceless Appeal Centre (NFAC) [CIT(A)'s], erred in upholding disallowance of Rs. 20,58,658/-

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 2 ITA No. 1381/MUM/2026

claimed as deduction claimed u/s 80P(2)(d) of the Income Tax Act, 1961, claimed as deduction claimed u/s 80P(2)(d) of the Income Tax Act, 1961, claimed as deduction claimed u/s 80P(2)(d) of the Income Tax Act, 1961, ['the Act'] being interest income earned on deposits with co-operative ['the Act'] being interest income earned on deposits with co ['the Act'] being interest income earned on deposits with co banks/societies, thereby denying the legitimate be banks/societies, thereby denying the legitimate benefit available to a Co nefit available to a Co- operative Housing Society. operative Housing Society. 2. The Ld. CIT(A) erred in holding that the interest income does not qualify 2. The Ld. CIT(A) erred in holding that the interest income does not qualify 2. The Ld. CIT(A) erred in holding that the interest income does not qualify for deduction u/s 80P(2)(d), ignoring the plain language of the provision for deduction u/s 80P(2)(d), ignoring the plain language of the provision for deduction u/s 80P(2)(d), ignoring the plain language of the provision which explicitly allows deduction on interest or divid which explicitly allows deduction on interest or dividends on securities, ends on securities, deposits, loans or advances made by the assessee co deposits, loans or advances made by the assessee co- operative society to operative society to other co-operative societies, without any restriction on the nature of operative societies, without any restriction on the nature of operative societies, without any restriction on the nature of deposits or recipient society. deposits or recipient society. 3. On the facts and in the circumstances of the case, the learned CIT(A)'s 3. On the facts and in the circumstances of the case, the le 3. On the facts and in the circumstances of the case, the le failed to consider that in the various judicial pronouncement of Hon'ble failed to consider that in the various judicial pronouncement of Hon'ble failed to consider that in the various judicial pronouncement of Hon'ble High courts / ITAT High courts / ITAT - Mumbai as well as judgments in earlier years in Mumbai as well as judgments in earlier years in Appellant's own case, deduction u/s 80P(2)(d) is held to be allowed to Appellant's own case, deduction u/s 80P(2)(d) is held to be allowed to Appellant's own case, deduction u/s 80P(2)(d) is held to be allowed to Co.Op. Housing Societies. Co.Op. Housing Societies. 4. The Appellant prays that the order of the CIT(A)'s, passed without The Appellant prays that the order of the CIT(A)'s, passed without The Appellant prays that the order of the CIT(A)'s, passed without assigning cogent reasons for rejecting the assessee's contentions, be set assigning cogent reasons for rejecting the assessee's contentions, be set assigning cogent reasons for rejecting the assessee's contentions, be set aside and the Appellant be allowed deduction u/s 80P(2)(d) amounting to aside and the Appellant be allowed deduction u/s 80P(2)(d) amounting to aside and the Appellant be allowed deduction u/s 80P(2)(d) amounting to Rs. 20,58,658/- of the Act claimed in the of the Act claimed in the return of income. return of income. 5. The Appellant craves leave to add, alter, amend or substitute the above 5. The Appellant craves leave to add, alter, amend or substitute the above 5. The Appellant craves leave to add, alter, amend or substitute the above referred ground or to add any other grounds of appeals. referred ground or to add any other grounds of appeals. 2. The central grievance of the Assessee The central grievance of the Assessee in grounds raised in grounds raised is the disallowance of deduction amounting to ₹20,58,658/ disallowance of deduction amounting to 20,58,658/- claimed under Section 80P(2)(d) Section 80P(2)(d) of the Income Tax Act, 1961 (‘the Act’), of the Income Tax Act, 1961 (‘the Act’), representing interest income derived from deposits held with representing interest income derived from deposits held with representing interest income derived from deposits held with various co-operative banks. operative banks.

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 3 ITA No. 1381/MUM/2026

while completing the assessment under section 143(3), disallowed completing the assessment under section 143(3), disallowed completing the assessment under section 143(3), disallowed the claim on the ground that (i) Co the claim on the ground that (i) Co-operative banks are commercial operative banks are commercial entities and do not qualify as "co entities and do not qualify as "co-operative societies" for the operative societies" for the purpose of Section 80P(2)(d); (ii) As per the decision in Totgar’s Co- purpose of Section 80P(2)(d); (ii) As per the decision in purpose of Section 80P(2)(d); (ii) As per the decision in operative Sale Society Ltd. vs. ITO (322 ITR 283) operative Sale Society Ltd. vs. ITO (322 ITR 283), interest earned on , interest earned on surplus funds constitutes "Income from Other Sources" and not surplus funds constitutes "Income from Other Sources" and not surplus funds constitutes "Income from Other Sources" and not operational business income; and (iii) The principle of mutuality is operational business income; and (iii) The principle of mutuality is operational business income; and (iii) The principle of mutuality is defeated by the commerciality element inherent in defeated by the commerciality element inherent in earning interest earning interest from banking institutions. from banking institutions. The relevant findings of the Ld. AO The relevant findings of the Ld. AO is reproduced as under: reproduced as under:

Further, in a very recent landmark judgment in the case of M/s Further, in a very recent landmark judgment in the case of M/s Further, in a very recent landmark judgment in the case of M/s Bangalore Club Vs. Commissioner of Income tax (CIT), the Hon’ble Bangalore Club Vs. Commissioner of Income tax (CIT), the Hon’ble Bangalore Club Vs. Commissioner of Income tax (CIT), the Hon’ble Supreme Court of Supreme Court of India has gone into minute details for deciding the India has gone into minute details for deciding the nature /character of “principle of mutuality” under which the tax nature /character of “principle of mutuality” under which the tax nature /character of “principle of mutuality” under which the tax exemption has been claimed by various societies. The Hon’ble Supreme exemption has been claimed by various societies. The Hon’ble Supreme exemption has been claimed by various societies. The Hon’ble Supreme Court held that “in our opinion, unlike the surplus amount itself, which is Court held that “in our opinion, unlike the surplus amount itself, wh Court held that “in our opinion, unlike the surplus amount itself, wh exempt from tax under the doctrine of mutuality, the amount of interest exempt from tax under the doctrine of mutuality, the amount of interest exempt from tax under the doctrine of mutuality, the amount of interest earned by the assessee (Bangalore Club) from the member banks will not earned by the assessee (Bangalore Club) from the member banks will not earned by the assessee (Bangalore Club) from the member banks will not fall within the ambit of the mutuality principle and will therefore, be fall within the ambit of the mutuality principle and will therefore, be fall within the ambit of the mutuality principle and will therefore, be exigible to income Tax in hands of exigible to income Tax in hands of the assessee-club.” In this case, the club.” In this case, the surplus funds in the hands of the assessee were placed at the disposal of surplus funds in the hands of the assessee were placed at the disposal of surplus funds in the hands of the assessee were placed at the disposal of the corporate members viz. the banks, with the sole motive to earn interest, the corporate members viz. the banks, with the sole motive to earn interest, the corporate members viz. the banks, with the sole motive to earn interest, which brings in the commerciality element and thus, the interest so earned which brings in the commerciality element and thus, the interest s which brings in the commerciality element and thus, the interest s by the assessee has to be treated as a revenue receipt, exigible to tax. The by the assessee has to be treated as a revenue receipt, exigible to tax. The by the assessee has to be treated as a revenue receipt, exigible to tax. The facts of this case are similar to the facts of the instant case. The assessee facts of this case are similar to the facts of the instant case. The assessee facts of this case are similar to the facts of the instant case. The assessee CHS., had placed its surplus fund at the disposal of the cooperative bank, CHS., had placed its surplus fund at the disposal of the cooperative bank, CHS., had placed its surplus fund at the disposal of the cooperative bank, with sole motive of earn interest which brings in the commerciality of the of earn interest which brings in the commerciality of the of earn interest which brings in the commerciality of the element. Therefore, the interest so earned by it has to be treated as the element. Therefore, the interest so earned by it has to be treated as the element. Therefore, the interest so earned by it has to be treated as the revenue receipt, taxable under the Income Tax Act, 1961. revenue receipt, taxable under the Income Tax Act, 1961. revenue receipt, taxable under the Income Tax Act, 1961. The Hon’ble Supreme Court in the case of Totgar’s Co-operative Society The Hon’ble Supreme Court in the case of Totgar’s Co The Hon’ble Supreme Court in the case of Totgar’s Co Ltd. Vs. ITO, 322 ITR 283, held that interest on deposits were not business Ltd. Vs. ITO, 322 ITR 283, held that interest on deposits were not business Ltd. Vs. ITO, 322 ITR 283, held that interest on deposits were not business income but income from other sources and the society was not entitled to income but income from other sources and the society was not entitled to income but income from other sources and the society was not entitled to special deduction u/s 80P(2) of the Income tax Act, 1961. The finding of special deduction u/s 80P(2) of the Income tax Act, 1961. The finding of special deduction u/s 80P(2) of the Income tax Act, 1961. The finding of the Supreme Court read as unde the Supreme Court read as under:

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 4 ITA No. 1381/MUM/2026

“The words the whole of the amount of profits and gains of business in “The words the whole of the amount of profits and gains of business in “The words the whole of the amount of profits and gains of business in section 80P(2) of the IT Act 1961 emphasis that the income in respect of section 80P(2) of the IT Act 1961 emphasis that the income in respect of section 80P(2) of the IT Act 1961 emphasis that the income in respect of which deduction is sought by a cooperative society constitute the which deduction is sought by a cooperative society constitute the which deduction is sought by a cooperative society constitute the operational income and not the other incom operational income and not the other income which accrue to the society” e which accrue to the society” In view of the above, it is clear that a co In view of the above, it is clear that a co-operative bank is a commercial operative bank is a commercial bank and does not fall under the preview of a “Co bank and does not fall under the preview of a “Co- -operative Society” referred in section 80P(2)(d) of the IT Act 1961. referred in section 80P(2)(d) of the IT Act 1961. With regard to the contention With regard to the contention that appeals of the assessee has been that appeals of the assessee has been allowed by the Hon’ble ITAT, Mumbai for the A.Yr. 2014-15 is concerned, it allowed by the Hon’ble ITAT, Mumbai for the A.Yr. 2014 allowed by the Hon’ble ITAT, Mumbai for the A.Yr. 2014 is noticed that Hon’ble Tribunal has not decided the case on merit but was is noticed that Hon’ble Tribunal has not decided the case on merit but was is noticed that Hon’ble Tribunal has not decided the case on merit but was limited to the monetary limit involved. Hence the issue of allowability of limited to the monetary limit involved. Hence the issue of allowabil limited to the monetary limit involved. Hence the issue of allowabil deduction u/s 80P(2)(d) on interest income earned from co-operative bank deduction u/s 80P(2)(d) on interest income earned from co deduction u/s 80P(2)(d) on interest income earned from co has not been looked into nor discussed at all. Thus the contention of the has not been looked into nor discussed at all. Thus the contention of the has not been looked into nor discussed at all. Thus the contention of the assessee on this score is not found acceptable. assessee on this score is not found acceptable. Assessee vide its reply dated 09/03/2022 contended that it is eligible for Assessee vide its reply dated 09/03/2022 contended th Assessee vide its reply dated 09/03/2022 contended th deduction u/s 80P(2)(d) in view of decision of the Hon’ble Supreme Court in deduction u/s 80P(2)(d) in view of decision of the Hon’ble Supreme Court in deduction u/s 80P(2)(d) in view of decision of the Hon’ble Supreme Court in the case of The Mavilayi Service Cooperative Bank ltd & Ors. Vs CIT, the case of The Mavilayi Service Cooperative Bank ltd & Ors. Vs CIT, the case of The Mavilayi Service Cooperative Bank ltd & Ors. Vs CIT, Calicut & Ors (Civil Appeal Nos. 7343 Calicut & Ors (Civil Appeal Nos. 7343-7350 of 2019 dated 12/01/2021. 7350 of 2019 dated 12/01/2021. The contention of th The contention of the assessee in this regard is not found acceptable as in e assessee in this regard is not found acceptable as in the said case, the issue of deduction u/s 80P(2)(a)(i) was discussed in the said case, the issue of deduction u/s 80P(2)(a)(i) was discussed in the said case, the issue of deduction u/s 80P(2)(a)(i) was discussed in details. In the instant case, the assessee has claimed deduction u/s details. In the instant case, the assessee has claimed deduction u/s details. In the instant case, the assessee has claimed deduction u/s 80P(2)(d) of the Income tax Act, 1961 and the decision of the Hon’ble 80P(2)(d) of the Income tax Act, 1961 and the decision of t 80P(2)(d) of the Income tax Act, 1961 and the decision of t Supreme Court in the case of Totgar’s Cooperative Society Ltd. Vs. ITO, Supreme Court in the case of Totgar’s Cooperative Society Ltd. Vs. ITO, Supreme Court in the case of Totgar’s Cooperative Society Ltd. Vs. ITO, 322 ITR 283 is squarely found covered. Hence, the contention of the 322 ITR 283 is squarely found covered. Hence, the 322 ITR 283 is squarely found covered. Hence, the assessee on this score is not found acceptable. In the present case, the assessee on this score is not found acceptable. In the present case, the assessee on this score is not found acceptable. In the present case, the assessee has earned interest inc assessee has earned interest income from such cooperative banks at Rs. ome from such cooperative banks at Rs. 20,58,658/-. Therefore, the deduction of Rs. 20,58,658/ . Therefore, the deduction of Rs. 20,58,658/- claimed by the . Therefore, the deduction of Rs. 20,58,658/ assessee u/s 80P of the I.T. Act, 1961 is disallowed. Penalty proceedings assessee u/s 80P of the I.T. Act, 1961 is disallowed. Penalty proceedings assessee u/s 80P of the I.T. Act, 1961 is disallowed. Penalty proceedings u/s 270A of the Income Tax Act 1961, is initiated separately for under u/s 270A of the Income Tax Act 1961, is initiated separately for under u/s 270A of the Income Tax Act 1961, is initiated separately for under reporting of income in consequence of mis reporting of income in consequence of mis-reporting.” 4. On further appeal, the Ld. CIT(A) On further appeal, the Ld. CIT(A) sustained the disallowance, sustained the disallowance, placing heavy reliance on the amendment to Section 80P(4) and the placing heavy reliance on the amendment to Section 80P(4) and the placing heavy reliance on the amendment to Section 80P(4) and the doctrine of mutuality, concluding that interest income from co- doctrine of mutuality, concluding that interest income from co doctrine of mutuality, concluding that interest income from co operative banks is exigible to tax. e banks is exigible to tax. The relevant findings of the Ld. The relevant findings of the Ld. CIT(A) is as under:

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 5 ITA No. 1381/MUM/2026

2.1 It is pertinent to note here that vide finance Act, 2006, deduction from 2.1 It is pertinent to note here that vide finance Act, 2006, deduction from 2.1 It is pertinent to note here that vide finance Act, 2006, deduction from income of co-operative banks as per the provision of section 80P of IT Act, operative banks as per the provision of section 80P of IT Act, operative banks as per the provision of section 80P of IT Act, 1961, w.e.f. 01/04/200 1961, w.e.f. 01/04/2007 differentiate a co-operative bank in comparison operative bank in comparison to Cooperative society. to Cooperative society. The co-operative banks are functioning at par with the commercial operative banks are functioning at par with the commercial operative banks are functioning at par with the commercial banks, which do not enjoy any tax benefit. banks, which do not enjoy any tax benefit. Therefore, section 80 Therefore, section 80-P of the IT Act was amended by inserting a P of the IT Act was amended by inserting a new sub section (4) so as to provide that the provisions of the said section new sub section (4) so as to provide that the provisions of the said section new sub section (4) so as to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than primary shall not apply in relation to any cooperative bank other than primary shall not apply in relation to any cooperative bank other than primary agricultural credit society or a primary co agricultural credit society or a primary co-operative agricultural and rural operative agricultural and rural development bank. development bank. The very basis of functioning of any co The very basis of functioning of any co-operative society would be operative society would be the principal of mutuality. If we go through the principle of mutuality, the the principal of mutuality. If we go through the principle of mutuality, the the principal of mutuality. If we go through the principle of mutuality, the three important basic conditions of the principle are as under: three important basic conditions of the principle are as un three important basic conditions of the principle are as un i. There must be complete identity between the contributors and i. There must be complete identity between the contributors and i. There must be complete identity between the contributors and participators. ii. The action of the participators and contributors must be in furtherance of ii. The action of the participators and contributors must be in furtherance of ii. The action of the participators and contributors must be in furtherance of the mandate of the association. the mandate of the association. iii. There must be no scope of profiteering by the iii. There must be no scope of profiteering by the contributors from a fund contributors from a fund made by them which could only be expended or returned to themselves. made by them which could only be expended or returned to themselves. made by them which could only be expended or returned to themselves. However, all the above condition are not satisfied in the case of However, all the above condition are not satisfied in the case of However, all the above condition are not satisfied in the case of interest earned from cooperative banks by the co-operative society interest earned from cooperative banks by the co interest earned from cooperative banks by the co (assessee). As there is an el (assessee). As there is an element of profiteering in the activities of co ement of profiteering in the activities of co- operative society, while earning interest at higher rates the surplus will operative society, while earning interest at higher rates the surplus will operative society, while earning interest at higher rates the surplus will form part of its general reserve fund. form part of its general reserve fund. The Hon’ble Supreme Court in the case of Totgar’s Co The Hon’ble Supreme Court in the case of Totgar’s Co The Hon’ble Supreme Court in the case of Totgar’s Co-operative Society Ltd. Vs. ITO, 322 ITR 283 Society Ltd. Vs. ITO, 322 ITR 283, held that interest on deposits were not , held that interest on deposits were not business income but income from other sources and the society was not business income but income from other sources and the society was not business income but income from other sources and the society was not entitled to special deduction u/s 80P(2) of the Income tax Act, 1961. The entitled to special deduction u/s 80P(2) of the Income tax Act, 1961. The entitled to special deduction u/s 80P(2) of the Income tax Act, 1961. The finding of the Supreme Court read as under finding of the Supreme Court read as under: “The words the whole of th “The words the whole of the amount of profits and gains of business e amount of profits and gains of business in section 80P(2) of the IT Act 1961 emphasis that the income in respect of in section 80P(2) of the IT Act 1961 emphasis that the income in respect of in section 80P(2) of the IT Act 1961 emphasis that the income in respect of which deduction is sought by a cooperative society constitute the which deduction is sought by a cooperative society constitute the which deduction is sought by a cooperative society constitute the operational income and not the other operational income and not the other income which accrue to the society. income which accrue to the society.”

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 6 ITA No. 1381/MUM/2026

In view of the above, it is clear that a co In view of the above, it is clear that a co-operative bank is a operative bank is a commercial bank and does not fall under the preview of a “Co-operative commercial bank and does not fall under the preview of a “Co commercial bank and does not fall under the preview of a “Co Society” referred in section 80P(2)(d) of the IT Act 1961. Society” referred in section 80P(2)(d) of the IT Act 1961. The disallowance of Rs.20,58,658/ The disallowance of Rs.20,58,658/- claimed as deduction u/ claimed as deduction u/s 80P(2) of the Income Tax Act, 1961 is confirmed. 80P(2) of the Income Tax Act, 1961 is confirmed.” 5. We have considered the rival submissions and scrutinized the We have considered the rival submissions and scrutinized the We have considered the rival submissions and scrutinized the statutory provisions. The resolution of this dispute hinges on the statutory provisions. The resolution of this dispute hinges on the statutory provisions. The resolution of this dispute hinges on the interpretation of Section 80P(2)(d) in light of the exclusionary interpretation of Section 80P(2)(d) in light of the exclusionary interpretation of Section 80P(2)(d) in light of the exclusionary provision of Section 80P(4). n of Section 80P(4). The section 80P(2)(d) provides a ection 80P(2)(d) provides a deduction for the "whole of the income by way of interest or deduction for the "whole of the income by way of interest or deduction for the "whole of the income by way of interest or dividend derived by the co dividend derived by the co-operative society from its investments operative society from its investments with any other co-operative society." Notably, this provision does operative society." Notably, this provision does operative society." Notably, this provision does not distinguish betw distinguish between the nature of the income whether it is of the income whether it is falling under the head falling under the head ‘profit and gains of business/ profession profit and gains of business/ profession’ or ‘income from other sources’ sources’ provided the source of the income is provided the source of the income is another co-operative society. operative society.

5.1 The Revenue’s contention tha The Revenue’s contention that a co-operative bank is not a co operative bank is not a co- operative society is legally tenuous. While Section 80P(4) excludes operative society is legally tenuous. While Section 80P(4) excludes operative society is legally tenuous. While Section 80P(4) excludes co-operative banks from claiming deductions operative banks from claiming deductions under under Section 80P, it does not necessarily strip them of their status as "co-operative does not necessarily strip them of their status as "co does not necessarily strip them of their status as "co societies" when they ac societies" when they act as the source of interest for another society. of interest for another society. The Ld. CIT(A) relied on Totgar’s (supra); however, that decision The Ld. CIT(A) relied on ; however, that decision was rendered in the context of Section 80P(2)(a)(i) (i.e. business was rendered in the context of Section 80P(2)(a)(i) (i.e. business was rendered in the context of Section 80P(2)(a)(i) (i.e. business income earned by the society ). In contrast, Section 80P(2)(d) is a income earned by the society ). In contrast, Section 80P(2)(d) is a income earned by the society ). In contrast, Section 80P(2)(d) is a specific provision dealing with investments in other societies. The ic provision dealing with investments in other societies. The ic provision dealing with investments in other societies. The

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 7 ITA No. 1381/MUM/2026

Kerala Kerala State State Co-operative Co Hon'ble Hon'ble Supreme Supreme Court Court in in Agricultural & Rural Development Bank Ltd. vs. ACIT (154 Agricultural & Rural Development Bank Ltd. vs. ACIT (154 Agricultural & Rural Development Bank Ltd. vs. ACIT (154 taxmann.com 305) recently clarified that a co-operative society operative society does not become a "co does not become a "co-operative bank" unless it possesses a license operative bank" unless it possesses a license from the RBI and carries on banking business as defined under from the RBI and carries on banking business as defined under from the RBI and carries on banking business as defined under Section 5(b) of the Banking Regulation Act, 1949. Section 5(b) of the Banking Regulation Act, 1949.

5.2 We find that the identical issue has been decided that the identical issue has been decided that the identical issue has been decided by the Co- ordinate bench of the T ordinate bench of the Tribunal in ITA 2882 to 2885 of 2024 in the ribunal in ITA 2882 to 2885 of 2024 in the case of Mumbai Kamga Mumbai Kamgaar Madhyavati Grahak r Madhyavati Grahak Sahakari Sansthan Maryadit Maryadit for A.Y. 2014-15 and others held that for the held that for the purpose of Section 80P(2)(d), it must be verified whether the purpose of Section 80P(2)(d), it must be verified whether the purpose of Section 80P(2)(d), it must be verified whether the recipient bank is registered as a co recipient bank is registered as a co-operative society under the operative society under the relevant State Act. If the entity is a co relevant State Act. If the entity is a co-operative society, the interest operative society, the interest paid by it to the assessee paid by it to the assessee-society is eligible for deduction, society is eligible for deduction, irrespective of the bank's commercial activities. irrespective of the bank's commercial activities. The relevant The relevant finding of the co-ordinate bench is nch is reproduced as under:

“8. We have heard rival submission of the parties and perused the relevant 8. We have heard rival submission of the parties and perused the relevant 8. We have heard rival submission of the parties and perused the relevant material on record. The section 80P(2)(d) of the Act prescribe out of gross material on record. The section 80P(2)(d) of the Act prescribe out of gross material on record. The section 80P(2)(d) of the Act prescribe out of gross total income of co- -operative society, deduction in respect of the whole of operative society, deduction in respect of the whole of income by way of interest or dividend derived by the co ncome by way of interest or dividend derived by the co-operative society ncome by way of interest or dividend derived by the co from its investment with any other co from its investment with any other co-operative society. The Hon'ble operative society. The Hon'ble Supreme Court in the case of Totgars, Co Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. operative Sale Society Ltd. (supra) however held that for eligibility of (supra) however held that for eligibility of deduction u/s 80P(2)(d) of the deduction u/s 80P(2)(d) of the Act, the whole of the income referred to the business income and not any Act, the whole of the income referred to the business income and not any Act, the whole of the income referred to the business income and not any interest income which is earned from surplus money deposited with co- interest income which is earned from surplus money deposited with co interest income which is earned from surplus money deposited with co operative societies. Thus the interest income which is eligible under the operative societies. Thus the interest income which is eligible under the operative societies. Thus the interest income which is eligible under the head 'profit and gains of the business' of co fit and gains of the business' of co-operative society only becomes operative society only becomes eligible for deduction u/s 80P(2)(d) of the Act. Further, the Hon'ble Supreme eligible for deduction u/s 80P(2)(d) of the Act. Further, the Hon'ble Supreme eligible for deduction u/s 80P(2)(d) of the Act. Further, the Hon'ble Supreme Court in the case of Kerala State Co Court in the case of Kerala State Co-Operative Agricultural & Rural Operative Agricultural & Rural

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 8 ITA No. 1381/MUM/2026

Development Bank Ltd. [2023] 154 taxmann.c Development Bank Ltd. [2023] 154 taxmann.com 305 (SC) held that if the om 305 (SC) held that if the co-operative bank is carrying out business of banking as defined u/s 5(b) operative bank is carrying out business of banking as defined u/s 5(b) operative bank is carrying out business of banking as defined u/s 5(b) of the Banking regulation Act, then only such co of the Banking regulation Act, then only such co-operative bank shall be operative bank shall be barred for deduction u/s 80P(2)(d) of the Act, in view of prohibition u/s barred for deduction u/s 80P(2)(d) of the Act, in view of prohibition u/s barred for deduction u/s 80P(2)(d) of the Act, in view of prohibition u/s 80P(2)(4) of the Act, otherwise the co (4) of the Act, otherwise the co-operative bank not falling u/s 5(b) of operative bank not falling u/s 5(b) of the Banking regulation Act, shall be considered as co-operative society the Banking regulation Act, shall be considered as co the Banking regulation Act, shall be considered as co eligible for deduction u/s 80P(2)(d) of the Act. The Co eligible for deduction u/s 80P(2)(d) of the Act. The Co-ordinate Bench of the ordinate Bench of the Tribunal in the case of GSSS Credi Tribunal in the case of GSSS Credit Co-operative Society Ltd. v. ITO in ITA operative Society Ltd. v. ITO in ITA No. 248, 249 & 250/Bang/2024 held similar finding. For ready reference, No. 248, 249 & 250/Bang/2024 held similar finding. For ready reference, No. 248, 249 & 250/Bang/2024 held similar finding. For ready reference, said finding is reproduced as under: said finding is reproduced as under: "12. Regarding the interest income earned from the Co "12. Regarding the interest income earned from the Co "12. Regarding the interest income earned from the Co-operative Bank, in this regard, we are of the opinion that we have to see Bank, in this regard, we are of the opinion that we have to see Bank, in this regard, we are of the opinion that we have to see whether the Co whether the Co-operative Bank is carrying on the business of bank operative Bank is carrying on the business of bank as provided ITA No.248, 249 & 250/Bang/2024 under the Bank as provided ITA No.248, 249 & 250/Bang/2024 under the Bank as provided ITA No.248, 249 & 250/Bang/2024 under the Bank Regulation Act. In simple words, if the Co ulation Act. In simple words, if the Co-operative Bank is not operative Bank is not carrying out any banking business, then in our considered view, the carrying out any banking business, then in our considered view, the carrying out any banking business, then in our considered view, the deduction on account of interest on the investment made in such Co deduction on account of interest on the investment made in such Co deduction on account of interest on the investment made in such Co- operative Bank cannot be denied for the reason that such Co operative Bank cannot be denied for the reason that such Co operative Bank cannot be denied for the reason that such Co- operative Bank is not a bank as per the judgment of Hon'ble operative Bank is not a bank as per the judgment of Hon'ble operative Bank is not a bank as per the judgment of Hon'ble Supreme Court in the case of Kerala State Co Supreme Court in the case of Kerala State Co-operative Agricultural operative Agricultural and Rural Bank Ltd., Vs. ACIT reported in 154 taxmann.com 305, and Rural Bank Ltd., Vs. ACIT reported in 154 taxmann.com 305, and Rural Bank Ltd., Vs. ACIT reported in 154 taxmann.com 305, wherein it was observed that the assessee was a state wherein it was observed that the assessee was a state wherein it was observed that the assessee was a state-level agricultural and rural development bank and governed under the cultural and rural development bank and governed under the cultural and rural development bank and governed under the Kerala Co-operative Societies Act, 1969 as a co operative Societies Act, 1969 as a co operative Societies Act, 1969 as a co-operative society. The activity of the assessee was to provide credit facilities to its The activity of the assessee was to provide credit facilities to its The activity of the assessee was to provide credit facilities to its members. Accordingly, the assessee claimed a deduction under members. Accordingly, the assessee claimed a deduction under members. Accordingly, the assessee claimed a deduction under Section 80P(2)(a)(i) of the Act in the return of income. But the AO Section 80P(2)(a)(i) of the Act in the return of income. But the AO Section 80P(2)(a)(i) of the Act in the return of income. But the AO disallowed the same on the reasoning that the assessee was a disallowed the same on the reasoning that the assessee was a disallowed the same on the reasoning that the assessee was a cooperative bank and, therefore, it was hit by the provisions of cooperative bank and, therefore, it was hit by the provisions of cooperative bank and, therefore, it was hit by the provisions of section 80P(4) of the Act and thus would not be eligible for c section 80P(4) of the Act and thus would not be eligible for c section 80P(4) of the Act and thus would not be eligible for claiming deduction under section 80P(2) of the Act. Finally, the issue reached deduction under section 80P(2) of the Act. Finally, the issue reached deduction under section 80P(2) of the Act. Finally, the issue reached the Hon'ble Apex Court where it was held that banking is defined the Hon'ble Apex Court where it was held that banking is defined the Hon'ble Apex Court where it was held that banking is defined under section 5(b) of the Banking Regulation Act, 1949 to mean under section 5(b) of the Banking Regulation Act, 1949 to mean under section 5(b) of the Banking Regulation Act, 1949 to mean accepting, for the purpose of lending or investmen accepting, for the purpose of lending or investmen accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and money from the public, repayable on demand or otherwise, and money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Therefore, a withdrawal by cheque, draft, order or otherwise. Therefore, a withdrawal by cheque, draft, order or otherwise. Therefore, a banking company must transact banking business with the public. If banking company must transact banking business with the public. If banking company must transact banking business with the public. If a co-operative society would not transact the busin operative society would not transact the business of banking as operative society would not transact the busin defined in Section 5(b), it would not be a co defined in Section 5(b), it would not be a co-operative bank within operative bank within the meaning of section 56 of Banking Regulation Act and would be the meaning of section 56 of Banking Regulation Act and would be the meaning of section 56 of Banking Regulation Act and would be entitled to the benefit of deduction under Section 80P(2) of the Act. entitled to the benefit of deduction under Section 80P(2) of the Act. entitled to the benefit of deduction under Section 80P(2) of the Act. Since, the assessee society was an Since, the assessee society was an apex co- operative society within operative society within

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 9 ITA No. 1381/MUM/2026

the meaning of Kerala State Co the meaning of Kerala State Co-Operative Agricultural Development Operative Agricultural Development Banks Act, 1984 (State Act, 1984) whose primary object was to Banks Act, 1984 (State Act, 1984) whose primary object was to Banks Act, 1984 (State Act, 1984) whose primary object was to provide financial accommodation to its members ITA No.248, 249 & provide financial accommodation to its members ITA No.248, 249 & provide financial accommodation to its members ITA No.248, 249 & 250/Bang/2024 who were all ot 250/Bang/2024 who were all other co-operative societies and not operative societies and not members of the public, it was not a co members of the public, it was not a co-operative bank within the operative bank within the meaning of section 5(b) read with Section 56 of Banking Regulation meaning of section 5(b) read with Section 56 of Banking Regulation meaning of section 5(b) read with Section 56 of Banking Regulation Act. Accordingly. the deduction under Section 80P could not be Act. Accordingly. the deduction under Section 80P could not be Act. Accordingly. the deduction under Section 80P could not be denied to the assessee by denied to the assessee by invoking Section 80P(4) of the Act. invoking Section 80P(4) of the Act.

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 10 ITA No. 1381/MUM/2026

payor-bank is a conclusion drawn without a factual foundation. bank is a conclusion drawn without a factual foundation. bank is a conclusion drawn without a factual foundation. In these facts and circumstances and i these facts and circumstances and in the interests of justice and n the interests of justice and ensure statutory compliance, we d ensure statutory compliance, we deem it appropriate to eem it appropriate to set aside the impugned order and remit the matter to the file of the Assessing the impugned order and remit the matter to the file of the Assessing the impugned order and remit the matter to the file of the Assessing Officer for a limited verification. The AO shall verify if the co- Officer for a limited verification. The AO shall verify if the co Officer for a limited verification. The AO shall verify if the co operative banks from which the interest was received are registered operative banks from which the interest was received are registered operative banks from which the interest was received are registered as "co-operative soci operative societies" under the Maharashtra Co Maharashtra Co-operative Societies Act or any relevant statute. If the payor or any relevant statute. If the payor or any relevant statute. If the payor-banks are registered societies, the deduction under Section 80P(2)(d) shall be registered societies, the deduction under Section 80P(2)(d) shall be registered societies, the deduction under Section 80P(2)(d) shall be allowed in accordance with the law. allowed in accordance with the law. The AO is directed to provide The AO is directed to provide the Assessee with a reasonable opportunity to be heard and to a reasonable opportunity to be heard and to a reasonable opportunity to be heard and to submit necessary registration certificates of the concerned banks. submit necessary registration certificates of the concerned banks. submit necessary registration certificates of the concerned banks. The grounds of the appeals are accordingly allowed for statistical of the appeals are accordingly allowed for statistical of the appeals are accordingly allowed for statistical purposes.

Order pronounced in the open Court on ounced in the open Court on 20/04/2026. /04/2026.

Sd/- Sd/ Sd/- (ANIKESH BANERJEE ANIKESH BANERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 20/04/2026 Aditi Pandare, Private Secretary. Aditi Pandare, Private Secretary.

Rustomjees Ozone Co Ozone Co-Op Housing Society Ltd. 11 ITA No. 1381/MUM/2026

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai